Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/238520 
Authors: 
Year of Publication: 
2020
Series/Report no.: 
ADBI Working Paper Series No. 1163
Publisher: 
Asian Development Bank Institute (ADBI), Tokyo
Abstract: 
Does a shortage of safe assets sow the seeds of instability in a financial system? This paper empirically explores the hypothesis of safe asset shortage-induced excess credit booms and financial instability. As an alternative step forward from the assumption of growth- or wealth-based demands for safe assets, the study underlines demographic factors as a key determinant of safe asset demands. Based on the long-run trends of aging and government debt, I construct a new safe asset shortage index. Using the index, consecutive empirical exercises confirm the positive relationship of safe asset shortage-credit expansion-aggregate risks of a financial system. The estimation of the crisis probabilistic model for 17 advanced economies in 1960-2013 presents new evidence that the (high) level of private credit at a time of increasing safe asset shortage is the major predictor of financial crises. The fixed-effect panel analysis results for 18 advanced countries in 1980-2016 also show a significant, positive contribution of a safe asset shortage to credit growth. The total effect of the shortage depends positively on securitization growth and negatively on net capital outflows. The latter effect is considerably dominant.
Subjects: 
safe asset shortage index
demographics
credit
financial crises
financial stability
government debts
capital flows
JEL: 
E21
E62
G00
G01
J10
Creative Commons License: 
cc-by-nc-nd Logo
Document Type: 
Working Paper

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